Discuss as:

Medicare fund to run out five years earlier than projected

From msnbc.com's Tom Curry
Jobs, jobs, jobs. If only there were a few million more of them – and a few million more people paying payroll taxes to support Medicare and Social Security -- those two entitlement programs wouldn’t be facing insolvency quite so soon.

Friday’s release of the annual reports of the Social Security and Medicare trustees brought the news that the Medicare Hospital fund will run out in 2024, five years sooner than projected by the trustees just last August.

(These reports are usually released in the spring but were delayed last year due to the enactment of the health care law.)

The trustees pushed up the exhaustion date for combined Social Security retirement and disability funds by one year -- to 2036.

At that point, the program will be able to pay only three-quarters of the benefit amounts promised to today’s workers.

Health and Human Services Secretary Kathleen Sebelius said the moving up of the insolvency date for Medicare’s hospital fund was “due in large part to lower payroll tax revenues as a result of the slower than expected economic recovery. And it’s important to note that this is exactly what we’ve seen in previous recessions.”

The same applies to Social Security: fewer people working means less revenue going into the system.

Friday reports were a stark reminder that both programs are mostly paid for by current workers.

The programs have some funds amassed, but the Treasury bonds in those funds are liabilities to federal government – that is, the bonds in the funds will need to be redeemed and paid for by the taxpayers.  And the interest paid on those bonds comes from today’s taxpayers.

So as employment goes, so go the entitlement programs.

Public trustee Charles Blahous said that analysts had long known that retirement of the Baby Boomer generation “would place financial strains on Social Security, but unfortunately at the same time as the Boomers began to enter the retirement rolls, we experienced an economic downturn, and so some of these fiscal pressures have arrived earlier than previously anticipated.”

In 2010 -- for the first time since the 1980s -- Social Security tax revenues fell behind outgoing benefit payments.

Blahous said “these deficits in Social Security, which began last year, will be a permanent feature of program finances going forward -- unless and until legislative corrections are enacted.”

The nominal value of the Social Security trust funds will continue to rise but “the cost of paying annual benefits is rising at a more rapid rate than the nominal value of the trust funds,” Blahous said.

The crucial question – for the unemployed and for the future of these massive entitlement programs is how quickly the United States returns the unemployment range seen during the long prosperity of 1992-2007 – unemployment at 4 percent to 6 percent, instead of today’s 9 percent.

The trustees estimated that unemployment rate will remain at 9.5 percent this year and then decline slowly over the next several years and reach 5.5 percent by 2018.

On Medicare, the trustees warned  -- just as they did in last year’s report  -- that their projections are based on certain assumptions that are not likely to happen.

The trustees’ projections must be based on current law.

But one big part of current law, reductions in Medicare payment rates for doctors, have regularly been overridden by Congress, simply because the cuts are too politically and economically painful.

Thus, the “almost 30 percent reduction in Medicare payment rates for physician services is assumed to be implemented in 2012 as required under current law, despite the virtual certainty that Congress will override this reduction.”

Also doctors and hospitals may not be able meet the productivity goals in last year’s health care law.

In view of all that, the trustees warned “it is important to note that the actual future costs for Medicare are likely to exceed those shown by the current-law projections in this report.”

In other words Medicare finances are likely in worse shape than the top-line numbers suggest.